CEOs Try to Escape Higher Taxes Going into Effect in 2013

Many business executives- including some at companies such as Cablevision and Google- took action in late 2012 as the expiration of the Bush tax cuts loomed.  By selling stock at the end of 2012, these executives saved a considerable amount in taxes.  In 2012, the tax rate on long-term capital gains was 15 percent.  As a result of Congress passing the “fiscal cliff” compromise in early January 2013, that rate for 2013 is 20 percent.  In addition, a new Medicare tax of 3.8 percent applies to investment income in 2013 and beyond as a result of the Affordable Care Act (sometimes called “Obamacare”).  Finally, people with substantial income, including capital gains, are subjected to a phase-out of certain deductions, which increases their tax rate approximately 1 percent.  Thus, a high-income taxpayer went from paying a 15 percent on long-term capital gains in 2012 to approximately 24.8 percent in 2013, which amounts to a 65 percent tax increase on such capital gains.  An executive who sold stock at the end of 2012 (rather than January 1, 2013) for a long-term capital gain of $50 million would have saved about $4.9 million in taxes.